It broke new ground with its Michigan Economic Growth Authority tax incentives, created more than 10 years ago and aimed at companies that promised big job growth. And with its 1995 brownfield liability reform and Renaissance Zones the state became a national leader, economic developers say.

But little innovation of such scope has been added to the economic development toolbox since then. That inertia has challenged growth in a state that is competing against lower-cost competitors, a declining domestic auto industry and its own negative perceptions.

MEDA's recommendations

The Michigan Economic Developers Association has proposed changes on state incentives based on four goals: worker training, business retention, accelerating new business development and business attraction.

Here are the basic recommendations:

• Convert the 21st Century Jobs Fund into a revolving loan fund

• Create Business Accelerator Renaissance Zones

• Increase the number of SmartZones

• Develop a new MEGA program

• Create a Tax Relief for New Jobs program that offers tax credits for creating jobs on targeted industries

• Eliminate the sales tax in construction for economic development projects

• Fund a competitive economic deal-closing fund for projects of a major sale or impact

• Offer a 40 percent tax credit for film production projects.

• Encourage tourism destination projects

• Increase the R&D tax credit for sustainability

• Overhaul the industrial tax abatement law

• Update tax-increment financing tools

"We all recognize that companies are looking for and, in many cases, demanding these incentives," said Randy Thelen, president of Lakeshore Advantage in Zeeland and co-chairman of a Michigan Economic Developers Association task force that's pushing for a major overhaul in the state's economic development incentives.

A recently issued MEDA report suggests ways to adapt existing incentives, as well as create new ones.

"The bottom line is simple: We, as leaders, must take bold action if our great state is to return to economic vitality," states the MEDA report, which concludes that Michigan trails competing states, particularly in the Southeast, on business climate issues.

"We must move fast to create a more dynamic, flexible and comprehensive economic development incentive strategy," the report states.

At the top of the list are increases in job-training funds and a lowering of the threshold for MEGA tax breaks, which requires job growth of 50 employees or more. What's needed is a lower threshold for companies to qualify for funds, MEDA asserts.

"Today that program works very well for large-scale companies that can have a 50-employee step," Thelen said. "... At the same time, we have a level of growth at the mid-scale level."

That might lure companies with smaller work forces, such as tech, life sciences or the emerging alternative-energy manufacturers, which may bring very few employees but capital-intensive projects.

"Is that a bad thing? I particularly believe for many years ... we have placed too much emphasis on job creation," said Donald Schurr, president of Greater Gratiot Development Inc. and the MEDA task force's other co-chairman.

Many of Michigan's incentives were created for the economic base the state once enjoyed, but they have not been adapted quickly enough to the new markets it hopes to grow, developers say.

Some of the recommendations are embodied in legislation currently in the Legislature, such as updating MEGA, better promoting tourism and building incentives for media companies to produce their movies here, Michigan Economic Development Corp. spokeswoman Bridget Beckman said.

The MEDC, the state's main economic development agency, concurs with much of the association's proposals.

MEDC CEO and president Jim Epolito said in February that he wants officials to change legislations that forces companies to look out of state before getting incentives in Michigan (Ann Arbor Business Review, Feb. 7-13).

But companies don't choose sites based on incentives, said Greg Burkart, a lawyer at in Detroit and author of a March 2007 incentives study that prompted the MEDA report. They choose a site based on cost, and that's where Michigan's recruitment troubles begin.

"Michigan is considered a high-cost area. Typically incentives are used as a way to" mitigate those costs, Burkhart said. "For Michigan, they're important. For other states, they might not be as important."

For that very reason, the state's largest business group - the Michigan Chamber of Commerce - doesn't see the issue facing Michigan as a need to change economic incentives.

What Michigan needs to attract and generate business investment, said Tricia Kinley, the Michigan chamber's director of tax policy and economic development, is to simply lower its tax and regulatory burdens on business and improve its business climate.
"Michigan's business climate is not due to the lack of tools in the toolbox," Kinley said.

The Michigan chamber "is not totally convinced" economic development incentives are even working and worries about the state "picking winners and losers," rather than having an environment where all businesses can thrive, Kinley said.

Rob Fowler, CEO of the 5,000-member Small Business Association of Michigan, supports the need for overhauling the state's incentives.

Fowler questions strategies such as limiting the 21st Century Jobs Fund to four industries. SBAM argues that the state needs to pursue successful companies with high growth potential, not specific sectors, or rather look at "the stages of the business, not the type of business."